KONTRON AG REPORTS STRONG GROWTH IN SALES AND EARNINGS

Quarterly sales of EUR 126.7 million the highest in the company's history / Currency-adjusted growth of 23 percent in the first half of the year / First-half earnings climb 24 percent to EUR 16 million / High level of order book and growth in design wins confirm annual forecast

Eching, Munich, July 28, 2008. Kontron AG, one of the world's leading suppliers of embedded computer systems, once again exceeded the high growth rates of the first three months of the 2008 financial year, and achieved the highest quarterly sales in the company's history, at EUR 126.7 million, in the second quarter. It represents a nominal increase of 13.5 percent compared with the prior year period (EUR 111.7 million), and growth was even as high as 25 percent on a currency-adjusted basis. This means 2008 first-half sales amounted to EUR 232.6 million, comparedwith EUR 207.6 million in the previous year's first half. This is equivalent to an increase of 12 percent, and 23 percent when adjusted to reflect exchange-rate movements. The order book also continued to rise, despite the high level of sales growth. At EUR 306.7 million, it was up 19.5 percent compared with the previous year period (EUR 256.7 million). When taking the weak dollar into account, year-on-year growth of around 31 percent would have been much higher, as would have been the case with sales. Dynamic business growth resulted from all regional markets in equal measure. Extremely high growth continued unabated in the emerging markets of Russia and China. Europe is experiencing strong growth, and we are once again achieving organic growth in America on a currency-adjusted basis. Kontron AG's high degree of diversification is having a sustainably positive effect in vertical markets. Weaker order flows in the automation area of application, particularly for European mechanical and plant engineering companies, were in the main more than compensated for by higher orders in the promising areas of the energy sector, security technology, and telecommunications. As was the case with sales and the order book, design wins, which are also important for our medium-term forecast, continued to rise. This figure amounted to 223, compared with 162 in the previous year period, and, in monetary terms, volume increased from EUR 129 million to EUR 151 million.
Earnings growth significantly outstrips sales growth
At EUR 12.8 million, second-quarter operating earnings rose 22.2 percent compared with the previous year's figure (EUR 10.4 million). The EBIT margin consequently climbed to 10.1 percent, compared with 9.3 percent in the prior year period. EBIT in the first half of the year at Kontron AG grew 24.4 percent to EUR 21.4 million, compared with EUR 17.2 million in the first six months of 2007. Second-quarter earnings rose to EUR 9.2 million, which corresponds to an increase of 16 percent compared with the previous year period (EUR 7.9 million). Net earnings for the first of the year consequently amounted to EUR 15.9 million, compared with EUR 12.8 million in the first half of 2006. This represents an increase of 24.2 percent. Operating cash flow, which amounted to EUR 5.3 million minus in the first quarter, was burdened by the integration of the French company Thales Computers. It rose to EUR 11 million in the second quarter again.
Restructuring in Asia strengthens independence and brand presence
Kontron topped up its stake in the Malaysian production location in Penang to 100 percent at the end of June. This not only allows production costs to be reduced further, it also secures long-term independence through complete control of manufacturing. Manufacturing capacities in comparatively expensive locations such as North America will continue to be gradually dismantled, and relocated to Asia. At the same time, the purchase of the remaining shares in the Malaysian production location will allow the Asian joint-venture with the world's largest manufacturer of laptops, Quanta Computers Inc., to concentrate to a greater extent on favorable purchasing conditions, and the supply chain. It is also intended that the production of larger volumes, in excess of 100,000 units, will occur in cooperation with Quanta. In addition, Quanmax will acquire a further strong joint-venture partner as the last step towards repositioning sales and production structures in the promising Asian market. Pre-agreements with suppliers of consumer-oriented computer solutions with software expertise have already been signed. Kontron will correspondingly cut its share in the joint-venture from currently 45 percent to around 20 percent, and no longer consolidate Quanmax as of June 30. This will have a negative impact of around EUR 8 million on sales in the second half of the current financial year. The earnings position is not affected by this measure. The reduction in the total number of employees at Kontron AG, from 2,567 at the end of the last year to 2,519 at the end of the second quarter, is largely due to this revised consolidation measure. Kontron achieved a further strengthening of its market presence in Asia in July with a new cooperation with the Korean market leader for embedded software solutions, MDS Technology.
Outlook: profitable growth course continues
Our good level of sales growth in the second quarter, a high order book level of EUR 307 million, and further gains in design wins, both in terms of number of volumes, lead us to anticipate that business growth will continue to be dynamic in the second half of the year. Although it cannot be excluded that there will be negative effects in the short term, particularly in the automation area of application, Kontron is experiencing particularly strong growth in other application areas such as the energy sector and security technology. On the earnings side, the extensive Profit Improvement Program is catering for positive effects. "This means that, from today's perspective, our sales and earnings forecasts for the 2008 financial year can be fully confirmed: (currency-adjusted) double-digit sales growth, accompanied by a rate of earnings growth outstripping that of sales," explained Kontron CEO Ulrich Gehrmann.